Econ 1-B Chapter 14 Final Review
Airlines engage in price discrimination
True
After a severe hurricane in South Carolina, the price of electric generators quadrupled. People living outside of South Carolina purchased electric generators in their home states and drove them to South Carolina to sell at a much higher price. What is this an example of?
arbitrage
Which of the following is NOT an example of price discrimination?
product innovations leading to lower prices
Price discrimination can be defined as:
selling the same product at two different prices in two different markets.
Why are the prices of hardcover books more expensive than paperback?
Consumers who can't wait for the paperback version have a greater willingness to pay and buy the hardback upon its release.
Which of the following statements is TRUE?
Customers who shop for airline tickets weeks or months in advance are likely vacation travelers and thus more sensitive to ticket prices.
Haircuts for men are often cheaper than haircuts for women, even when they are offered by the same stylist. Why might this be price discrimination?
Demand for haircuts for women might be more inelastic than demand for haircuts for men, and haircuts are impossible to arbitrage
Arbitrage is the act of buying at a low price and selling at a high price, which makes the practice of price discrimination even more profitable.
False
Price discrimination is bad if total surplus increases with a decrease in output.
False
Which of the following best explains why people booking airline tickets just prior to their departure dates tend to pay a higher price than those that book a long time in advance?
Individuals booking tickets just a few days in advance tend to have a more inelastic demand for airline tickets.
The chapter opens with a story about GlaxoSmithKline (GSK) and Combivir, the anti-AIDS drug. What was one of the reasons that GSK was selling Combivir for such low prices in Africa as compared to Europe?
Lower prices were charged for humanitarian reasons.
Which of the following regarding the outcome of perfect price discrimination is TRUE?
Producer surplus increases.
In markets where consumers are price insensitive, price discriminators should charge higher prices than in markets where consumers are price sensitive.
True
Perfect price discrimination results in zero dollars of consumer surplus.
True
The difference between tying and bundling is that:
bundled goods are sold one to one, while tied goods are sold one to many.
Disneyland sells goods that are largely:
bundled.
Private universities such as Williams College price discriminate most directly by:
family income level.
Bundling can increase efficiency especially when:
fixed costs are high and marginal costs are low.
In which of the following industries may price discrimination be good?
industries with high fixed costs of production
A perfectly price-discriminating monopoly causes:
maximum social surplus.
Universities practice price discrimination by:
offering students different levels of scholarship support.
A firm that spends extra money to practice tying does so to
prevent competition.
A museum in Russia has two entrances: one for locals (written in Russian) and one for tourists (written in English). People who enter through the entrance written in Russian will end up paying 81.93 Rubles ($3.00). English-speaking tourists will use the entrance written in English, but they will end up paying 409.67 Rubles ($15.00). This practice is an example of:
price discrimination.
Suppose there are two types of cable TV viewers. The first type places a high value on sports channels (e.g., ESPN, Fox Sports, and The Golf Channel) and a low value on all other channels. The second type places a high value on music channels (VH1, MTV3, and CMT) and a low value on all other channels. In this case, we would expect cable operators to:
sell sports and music channels in one bundle to both types of viewers.
Which of the following does NOT represent a benefit that can be achieved from bundling?
setting of bundle prices that are lower than individual unit prices
